Houston’s housing success: A model for cities

Experts have been sounding the alarm for years: restrictive zoning is largely to blame for challenges with housing supply and, consequently, affordability. As cities across the United States continue to struggle with high home prices, loosening zoning regulations on density and development type is a tool to alleviate price pressure. Evidence from Houston, Texas, suggests that a decentralized regulatory climate has fostered a housing market capable of effectively adjusting to price pressure.

Houston is the closest to a natural experiment on loose zoning regulations in the United States. This city has no traditional zoning or comprehensive planning, though the employment of deed restrictions on individual land parcels and neighborhoods is permitted (in addition to other workarounds). Deed restrictions, which often apply to neighborhoods and subdivisions, impose zoning-like requirements on homebuyers as a condition of purchase. These agreements dictate what can be done with the home or parcel of land and can be very specific. The primary difference between deed restrictions and traditional zoning is that deed restrictions are private agreements that apply to only about one-quarter of the city. Traditional zoning divides an entire city into predetermined areas for different uses. Despite multiple proposals to institute citywide zoning in Houston, voters have rejected its implementation every time.

A primary driver of the housing crisis is an inability to expand the housing supply commensurate with population growth. Houston is also the second-largest city in Texas by population and the largest by land area (see Table 1). Since 2008, it has had the second-largest population growth in the state. Despite its size and explosive growth, Houston’s regulatory flexibility allows developers to respond to price incentives more quickly than in cities with strict zoning. Developers in Houston have more options regarding where and what they can build.

In the American Planning Association’s Planning Magazine, William Fulton writes, “Under the city’s development code, no parcel of land is restricted for any particular land use, and in many cases there are no density or height restrictions either.” While Houston still has restrictions when it comes to housing development, less top-down regulation has manifested in more housing construction and lower home prices. Houston stands out as an exemplary model for housing market responsiveness, not just for Texas but for the whole country. Given the current shortage-driven housing crisis, Houston’s unique land use arrangement is an important reference when developing public policy.

In 2009, Reason published “Housing Market Resilience and Affordability in Houston, TX.” It analyzes the resilience of the Houston market in the wake of the 2008 financial crisis. At the time, Houston was found to issue significantly more housing permits (both single and multi-family) than any other Texas metropolitan area. However, challenges with the labor market meant this additional supply could not be fully realized in more affordable housing.

Today, the United States is facing another ongoing housing crisis. Houston’s unconventional land use approach continues to exemplify a means of facilitating housing construction that others may choose to follow. Examining permitting and home price data from other Texas metropolitan areas and other rapidly growing cities from across the US can illuminate changes in these housing markets and provide policy worth emulating.

Recovering since the 2009 trough, Texas has added substantially to its housing stock (see Figure 1). For single-family homes, most additions have taken place in Houston and Dallas, with Houston maintaining a lead since 2004 (see Figure 2). Austin has experienced steady growth, while El Paso and San Antonio have maintained relatively stable additions year on year (as expected due to their smaller populations). This trend continues what was observed in 2009 and is largely consistent with each city’s population changes.

Multifamily permitting, however, has produced some unexpected trends. Most notably, Austin has made leaps in multifamily permitting, joining and recently surpassing both Houston and Dallas (see Figure 3). Austin’s overrepresentation in multifamily permitting is likely in response to the recent influx of young adults aged 20-34 with a preference for renting over single-family homeownership. According to local housing experts, the response by developers may have been too eager, with record-high vacancy rates resulting.

Permits in Houston and Dallas, while taking dramatic leaps year on year, have generally trended upward. However, Houston has lost its 2007 lead. Ft. Worth, Arlington, and San Antonio have gradually increased their multifamily permitting (a similar trend to their single-family permitting data). As previously observed, El Paso has maintained very low levels of multi-family permitting with no discernable positive or negative trend.

Dallas, Austin, and Houston have all made substantial additions to both their single-family and multi-family housing stock. However, they have observed varied results when it comes to affordability. The American Enterprise Institute’s (AEI) Home Price Appreciation Calculator displays inflation-adjusted home prices in these Texas metropolitan areas since 2012. Figure 4 shows the home price appreciation (HPA) of overall home prices in Dallas, Austin, San Antonio and Houston, the four metropolitan areas with the highest populations in Texas up until December of 2023 (please note that data were not available for El Paso at all and Ft. Worth as separate from Dallas).

Despite Houston’s rapid population growth, its steady housing supply expansion has kept its overall home prices from appreciating as substantially as other large Texas cities like Dallas and Austin. It is important to note that this result is an average and not consistent for every price category. For example, in the “high” price range, Houston has experienced the lowest appreciation out of these metropolitans, while for the “low” price tier, it has the second-highest appreciation. Notably, San Antonio has experienced the lowest home price appreciation of these metropolitans (see Figure 1). San Antonio has launched substantial affordable housing initiatives ranging from loosening zoning restrictions to a 150 million dollar municipal bond to be used for affordable housing.

A comparison with other metros across the country reveals a similar pattern (see Figure 5). Despite having the second largest population among these incredibly fast-growing metros, Houston has maintained among the lowest home price appreciation.    

It is vital that markets are given the flexibility to adjust to mitigate price pressure. One way to facilitate rapid responses by developers is to eliminate sweeping barriers to development, like citywide zoning, and issue housing permits at a rate that keeps up with demand.

Importantly, this does not mean removing the ability of property owners to have a say in what their communities look like. Enforcement of private deeds and covenants allows for the maintenance of certain neighborhood characteristics if they are useful and desired by residents. Simultaneously, allowing for spontaneous and rapid private housing development in the rest of the city without the hassle of regulatory hoops is the secret behind Houston’s success. As policymakers consider housing policy alternatives, iterating toward a regulatory framework with less arbitrary barriers to housing development should be a primary objective.

The post Houston’s housing success: A model for cities appeared first on Reason Foundation.

Source: https://reason.org/commentary/houstons-housing-success-a-model-for-cities/